Earlier today, the United States Department of Labor announced a long-awaited final rule to take effect on January 1, 2020 updating the earnings threshold to $35,568 necessary for employees to qualify for the Fair Labor Standards Act’s (FLSA) “white collar” exemptions. The DOL estimates that 1.2 million additional workers will be entitled to minimum wage and overtime pay as a result of this increase in the salary basis.

The final rule updates the FLSA’s overtime exemptions for executive, administrative and professional workers (the white collar exemptions) and replaces a currently enjoined rule that was finalized by Labor Department in 2016. The final rule raises the salary threshold to qualify for one of the white collar exemptions to $35,568 per year (or $684 per week), which is an increase from the current $23,660 annual salary (or $455 per week) last updated in 2004 by the George W. Bush administration. However, the final rule sets the threshold at about $12,000 lower than the Obama administration’s (presently enjoined) proposed increase to $47,476.

“Today’s rule is a thoughtful product informed by public comment, listening sessions, and long-standing calculations,” Wage and Hour Division Administrator Cheryl Stanton remarked. “The Wage and Hour Division now turns to help employers comply and ensure that workers will be receiving their overtime pay.”

The controversial 2016 rule was blocked by a federal judge in Texas and subsequently invalidated by that Court. As of November 2017, the U.S. Court of Appeals for the Fifth Circuit has held the appeal in abeyance pending further rulemaking. Since the 2016 final rule was enjoined, the DOL has consistently continued to enforce the 2004 level while this issue was resolved.

In mid-2017, the DOL put out a request for information seeking feedback on a wide range of possibilities for superseding the Obama-era rule, from a narrower increase of the salary threshold to an overhaul of the rules governing the white collar exemptions.

The final rule has few significant changes from the proposed rule previously released in March 2019. The proposed version was issued under the watch of then-Labor Secretary Alex Acosta, who was replaced on an interim basis by Acting U.S. Secretary of Labor, Patrick Pizzella.

In addition to raising the salary basis, the final rule:

  • Raises the total annual compensation level for “highly compensated employees” (HCE) from the currently-enforced level of $100,000 to $107,432 per year;
  • Allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices across various industries; and
  • Raises the special salary levels for workers in U.S. territories and in the motion picture industry.

In addition, as it did in the proposed rule, the DOL abstained from the controversial mechanism proposed in the Obama administration’s rule that would have automatically increased the white collar exemption salary threshold every three years. The DOL asked for public comments on a plan to increase the salary threshold every four years going forward, with each increased being preceded by a period of public comments. However, the DOL did not adopt that plan in its final rule either.

The Trump administration’s revision of the 2016 overtime rule has been one of the most closely watched items on the agency’s agenda since the start of President Donald Trump’s term, because of its potential effect on businesses throughout the country and impact on millions of workers. Companies should consult with their employment counsel on determining the final rule’s impact on their workforce and pay practices.